Aviva feels full force as storm batters insurers

Insurance companies took another pummelling on the stockmarket yesterday amid deepening concern about the sector's health, sparked by losses at Aviva.

Trading in the shares of Aviva, which owns Norwich Union, was briefly suspended as the insurer was hit by a second day of selling. On Thursday, Aviva lost a third of its value after admitting it had slumped to a loss and by insisting it would pay a dividend when the City felt it should be preserving capital.

No Aviva shares changed hands for five minutes, starting at 8.24am. At that stage the shares had dropped to 171.1p, having closed at 189.9p on Thursday. Once trading resumed, the shares fell to a low of 160.1p before closing at 163.3p, off 14%.

Aviva has blamed short-selling for knocking sentiment although there were few disclosures to the market to indicate this. Short-selling occurs when traders borrow shares they do not own to sell on the market in the hope of making a profit by buying them back more cheaply.

A fund manager did, however, admit to being short on Legal & General. The Financial Services Authority has reserved the right to reintroduce a ban on short selling first imposed after HBOS's market dive last year, but did not do so yesterday.

Legal & General and Prudential - down 6% to 24.8p and 5% to 209.2p respectively - joined Aviva in the 10 heaviest casualties in the FTSE 100.

"We're just trading on fear," said ING analyst Kevin Ryan. "People are very worried about the quality of the assets insurers are holding. With zero interest rates, and equity and bond markets that don't offer reliable yields, the game appears to be up for insurance companies."